Swiss Franc Loses Safe-Haven Appeal Amid US Interest Rate Hike Expectations

The Swiss Franc (CHF) has continued its downward trend against the US Dollar (USD), with the USD/CHF trading near one-and-a-half-month highs at 0.8200 level. Despite being considered a safe-haven asset, the CHF has depreciated nearly 1.2% in September due to monetary policy divergence between the US Federal Reserve and the Swiss National Bank.

The strong US Nonfarm Payrolls report in August and hot US inflationary pressures have boosted market expectations of a Fed interest rate hike on Wednesday. Futures markets are pricing a 92% chance of a quarter-point rate hike, with another possible increase before the end of the year according to the CME's FedWatch Tool.

The Swiss National Bank (SNB) is expected to leave interest rates unchanged at 0% for the rest of the year and likely into 2027. This has led to the CHF being used as a funding currency in carry trades, where investors borrow low-yielding currencies to buy higher-yielding ones.

Rabobank strategists warn that the CHF could see a surge in long positions if market anxieties rise, highlighting its enduring safe-haven appeal. They also note that upcoming elections in France may be a risk factor that could trigger renewed demand for the Franc.